Arrangement as to price in supposed building contract held too uncertain–No binding agreement ever concluded–Contract to negotiate is unknown to the law
This was an
appeal by Tolaini Bros (Hotels) Ltd from a judgment of Shaw J on March 12 1974
holding that a letter of April 10 1969 from the respondents, Courtney &
Fairbairn Ltd, and the appellants’ reply thereto dated April 28 1969,
constituted a binding and enforceable contract for the construction of certain works.
Mr D Sullivan
(instructed by Wright & Webb, agents for Pollards, of Boreham Wood)
appeared for the appellants,
respondents.
Giving
judgment, LORD DENNING said that Mr Sidney Tolaini, the appellants’ managing
director, wanted to develop the site owned by the firm in Hertfordshire, and
got into touch with Mr Courtney, the respondents’ managing director, who was a
building contractor but was also well-placed to raise finance for building
development. On April 10 1969, after a meeting, Mr Courtney wrote a letter
which included the following important words:
I would be
very happy to know that, if my discussions and arrangements . . . lead to . . .
a financial arrangement acceptable to both parties, you will be prepared to
instruct your quantity surveyor to negotiate fair and reasonable contract sums
in respect of each of the three projects as they arise. (These would,
incidentally, be based upon agreed estimates of the net cost of work and
general overheads with a margin for profit of 5 per cent.)
On April 28
1969 Mr Tolaini replied that he agreed to the terms specified in this letter.
Mr Courtney then found someone who provided £200,000 or more to finance the
projects, and Mr Tolaini appointed a quantity surveyor; unfortunately, however,
there were differences over the price, nothing was agreed, and ultimately the
development work was carried out by other contractors. He (his Lordship) had
come to the conclusion that the letters relied on by the appellants did not
constitute a binding contract for works. The words used showed quite clearly
that all was left to be agreed in the future, neither a price nor any machinery
for ascertaining a price being fixed. Seeing that there was no agreement on
something so fundamental, there was no contract to build. But then it was said,
might there not still be a contract to negotiate? This subject was touched on by Lord Wright in
Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503 at 515, where
he said:
There is then
no bargain except to negotiate, and negotiations may be fruitless and end
without any contract ensuing; yet even then, in strict theory, there is a
contract (if there is good consideration) to negotiate, though in the event of
repudiation by one party the damages may be nominal, unless a jury think that
the opportunity to negotiate was of some appreciable value to the injured
party.
He (his
Lordship) thought that a contract to negotiate, like a contract to enter into a
contract, was something unknown to the law. Lord Wright’s tentative opinion did
not seem to be well-founded, because a contract to negotiate must necessarily
be too uncertain to have binding force. The appeal should therefore be allowed.
Agreeing, LORD
DIPLOCK said that Lord Wright’s dictum (for it was no more) was in his opinion
bad law.
LAWTON LJ
agreed with both judgments, and the appeal was allowed with costs above and
below.
